Meg Whitman reveals how badly HP was managed, hints at pain to come.

Yesterday, as President Barack Obama and Governor Mitt Romney were preparing to debate how to fix the country's economic mess, Hewlett-Packard CEO Meg Whitman was delivering a stunning confessional speech at HP's analyst briefing day, describing how bad things were at HP and making promises to fix them. She projected that the company would continue its headlong plunge in profits for at least another year—with a full rebound not in sight until 2016.

Showing shades of her previous political aspirations, Whitman liberally mixed metaphors to describe her awakening to just how screwed HP was. "We all hope we can accelerate the timing of this journey, but as I see the challenges up close and personal, there are no silver bullets," she said. "It's going to take longer to right this ship than any of us would like."

Not all of HP's product lines, or the people who make them, will survive the "journey" Whitman outlined. There will be some serious pruning of HP's businesses, and a focus on automating more of manufacturing (and eliminating workers). And even with new products in the pipeline, Whitman said 2013 is going to be a "rebuilding year" as the company retools practically everything it does. "2014 will be the year you see real recovery and expansion," she promised. "The new products and services we've been working on will kick in big-time in 2014."

Whitman put the bulk of the blame for the company's position on the mismanagement of her predecessors. The "single biggest challenge facing HP," she said, has been the multiple changes in HP's leadership, which caused "inconsistent strategic choices and some significant execution miscues." All that shuffling at the top led to a deficit of actual leadership within the company.

The lack of central leadership left individual units to figure out things for themselves. The company's marketing? Totally uncoordinated. Its services unit? Directionless from four changes in the top in as many years, and hurting from changes in the sales force. Its products? Too many, too slowly delivered, poorly packaged. Managerial accountability? What's that?

Apparently people at HP spent so much time changing offices that nobody ever got around to actually measuring what the company did. Whitman said there were no real metrics for measuring performance or providing early warnings, and top management had been essentially flying blind. "I've learned at HP, you don't get what you expect," Whitman said. "You get what you inspect."

For those of us who have observed the company closely over the past few years, much of what she had to say was just confirmation of what we already knew. That lack of attention to detail—and the absence of a leadership that could actually say the word "excellence" with a straight face—has shown up in the kinds of products HP has brought to market. Aside from the odd flash of inspiration, there has been little from the Personal Systems group that has provoked any sort of tech adoration. But as Whitman drilled down into the specifics of what had gone awry at HP, it turns out it was even worse than it appeared. Like the proverbial shoemaker's children, HP's internal IT has gone without the sort of business-management applications that HP's services unit sells to the company's customers.

"We aren't as effective internally as we should be because of poor systems," Whitman said. "We are not as competitive as we need to be in how we go to market because of our IT systems. We haven't been using a compelling customer management or CRM system for years." And the company's human resources systems were also a mess. HP is in the middle of implementing a whole flight of new systems to fix the problems, including Salesforce.com's CRM.

Worse still, Whitman revealed, HP has underinvested in research and development, and can't get innovations out of the lab and into products fast enough. Prior to this year, "it's been over 7 years since we've had a new lineup of multifunction printers," Whitman said. HP doesn't have an innovation problem, Whitman said—it has a problem actually doing anything with its innovations.

Whitman also shared how out of control the company's product lines were when she arrived a year ago. "When Todd Bradley took over [as executive vice president of] the Personal Systems Group," she said, "he was surprised to find that we made over 2,000 types of laser printers." Whitman said that HP would reduce that number by 20 percent in the next year—the beginning of a larger product merge and purge aimed at simplifying the company's logistics and lowering costs.

This sort of public airing of corporate dirty laundry is rare. But HP has become accustomed to having its internal chaos exposed to scrutiny—or even used as a marketing weapon against it, thanks to its legal wranglings with Oracle. According to some reports, Whitman decided that it was time to just dump all the bad news out at once, rather than slowly spooning it out over the next year as the company's revenue slides—and take the hit now before the next quarterly earnings call.

But there's sure to be plenty of bad news to come. The 14 percent dive HP's stock took after Whitman's presentation may just be a blip, but another year of declining profits and shrinking cash could make the company a bigger target for takeover as the PC market continues to consolidate and the server market remains stalled. Even when the company recovers, Whitman didn't project growth that was any faster than the overall growth of the global economy—a stealthy bit of expectation management, but also a signal that HP will be a much smaller, much different company by then.

Promoted Comments

...surprised to find that we made over 2,000 types of laser printers." Whitman said that HP would reduce that number by 20 percent in the next year...

This is astonishing. And this isn't a product line where "it comes in 8 different colors" is inflating the count either. But 2,000 – 20% is still 1600. This is a bit like saying you're only going to jump off the 80th floor of the Empire State Building instead of the 100th, so everything will be OK.

I am not sure why people think cleaning your dirty laundry in public is a good thing. The last time this happened was Elop with Nokia, and that almost certainly didn't help Nokia.

How do you think companies who were thinking of going with HP will respond to this? What are HP salespeople gonna tell their clients when their CEO herself is saying they havent done any innovating for more than half a decade, and that there is no coordination within the company?

This is nothing but an attempt for Whitman to buy 5 years as CEO, or at the very least, not be blamed if the transition does not succeed. It does not in any ways help HP (again, I am talking about making it public. Most CEOs know that there are problems with the company, but don't air that in public, except in massive generalities, or accompanied with a plan laying out the changes which will fix the issues aired. She did neither).

156 Reader Comments

Truly sad part? They purchased a savior in Palm, and then screwed it up thanks to Apothekar (and to some extent ) Whitman. Palm allowed them to keep their detiny in their own hands. Now they continue to be just slaves to Microsoft and lord knows how well Windows 8 will be accepted in tablet and smartphone space 6 months from now when iOS and Android offer a solution here and now.

"It was time, I felt, for an agonizing reappraisal of the whole scene."

Glad to see Meg &co taking a hard look, making an honest assessment, and setting about the difficult work of turning something around. I've seen this first-hand in the world of startups and mergers; it's hard work to do, and you'll lose the faith of some with weaker constitutions. But sometimes things have to get darker before they get lighter, and this kind of work is essential to the process of straightening things out.

HP has what it needs to do this; IP now and in development, manufacturing and logistics, a brand name people would be happy to trust again, and a lineup of products and services that may be running a fever but are in relatively stable condition. If they can hang in there and keep taking their medicine, there's every indication they can pull through, and this latest report seems to suggest the new management agrees.

Truly sad part? They purchased a savior in Palm, and then screwed it up thanks to Apothekar (and to some extent ) Whitman. Palm allowed them to keep their detiny in their own hands. Now they continue to be just slaves to Microsoft and lord knows how well Windows 8 will be accepted in tablet and smartphone space 6 months from now when iOS and Android offer a solution here and now.

Yeah-there was a lot of potential there. And it all just got pissed away due to the aforementioned lack of execution, investment and leadership. Too bad for HP and for everyone else.

The reality is that HP was formed largely by buying businesses like Compaq and DEC that had already seen their better days. There is a reason that IBM discarded large parts of its hardware business. The PC client business is in decline. All of the computer business will increasingly get commoditized. Apple has the high priced spread locked up. Some company founders do play an exceptional role in building their companies. But more commonly good management performance is the result of managing a company that is performing well. It is always possible that Whitman could be the exception. But the odds are stacked against her.

From reading the article, I don't see too much talk about quality, which is the number one reason I would never touch another HP product. That's been the biggest nosedive they've taken in the last few years.

They should look to their business lines to help them. their switches rock and so do their business desktops and workstations. Bring the quality found in these products to their home products and they should be fine.

I see a lot of posturing here. While I agree that previous CEO's made big mistakes, for her to blame the changes in CEO's as one of the big problems is a plea to be allowed to keep her job at least until 2016, the year she stated that Hp would be out of the mess, and the date her plans would come to fruition.

In actuality, the changes in CEO's were made because they had all done such a poor job. She actually praised two of them that have been acknowledged as having caused many of Hp's present problems. She praised Fiorina for making the purchase of Compac, something that was universally panned as beginning Hp's slide, and a reason for her firing. She praised Hurd for the purchase of EMC, even though that deal was criticized as being overpriced, and now, they had to do a write down of $8.6 billion, giving HP one of the largest losses in Us corporate history. Margins for EMC are stated by HP to continue falling. In addition, she complains that Hp's R&D is woefully inadequate—another doing of Hurd, as he was the one that slashed that area of the company while chasing short term profits.

EDIT: it was brought to my attention that I mistakenly said EMC. I meant, of course, EDS.

As far as I'm concerned, her lack of understanding of those issues shows that she lacks the ability to lead this company. We should remember that her claim to fame was her running EBay. But she was responsible for the mistake of purchasing Skype, which did not work out, and led to a multibillion dollar loss for the company. She then fled the company as sales and profits faltered. She has no experience running any other real company, and was given the directors seat as a consolation prize when her bid for governor fell through (thank heavens!).

HP is more than 20 times the size of EBay when she left it, and is an enterprise focused company, whereas EBay is entirely a consumer focused company. She has no experience in what HP does. It's difficult to understand why she was picked, unless no other competent potential CEO was interested.

The irony of it all may be that Apothecker was correct. They may have to get rid of the PC division after all.

If the trend continues towards mobile devices, with people using tablets more, that's going to make it difficult for HP, which still depends a lot on printing for profits?

Printer use may decline if people just load PDFs on their mobile devices to view rather than print. They won't stop printing completely but enough to slow the growth. Or worse, it could be a situation like Kodak where photography moved to digital and the company couldn't transition.

PC business is a loss leader isn't it? The profits come from printers sold with those PCs and the consumables?

Anyways, Whitman didn't run a hardware business so how is she going to fix HP? She said recently that HP will eventually have to make its own phones. Too late for that and more than likely, HP is utterly dependent on what MS does.

Truly sad part? They purchased a savior in Palm, and then screwed it up thanks to Apothekar (and to some extent ) Whitman. Palm allowed them to keep their detiny in their own hands. Now they continue to be just slaves to Microsoft and lord knows how well Windows 8 will be accepted in tablet and smartphone space 6 months from now when iOS and Android offer a solution here and now.

By the time HP bought Palm, they were dead. There was no chance of their survival in any form. I know this isn't the popular opinion in tech circles, but it's the truth. Palm blew it and no one could save it

From reading the article, I don't see too much talk about quality, which is the number one reason I would never touch another HP product. That's been the biggest nosedive they've taken in the last few years.

The merging of printer lines should be some indication of that. Fewer products and product revisions should mean easier support and better overall quality of said products.

I wasn't a big fan of her in politics but I'd have to say she seems like the only person who realizes how jacked up HP was and what was wrong. Exposing all the issues seems like a good start when the real thing you need is someone to lead,recognize the problems in your buisness, and have a plan to change.

As for consumer products, I like thier Envy laptops and I purchased one of thier desktops for cheap a year or so ago. The problem with their consumer products is that they all look the same. Thier "suped" up gaming machines look like they have the same cases as thier celerons.

Buying an HP product is like eating a funnel cake at the fair; it looks good, smells good, and even tastes good the first few bites but then about an hour later you're reminded why you swore them off a year ago.

Just remember HP you can recover and make great hardware with your own identity. Identity is important, you don't want to be an "it's almost like this but cheaper", you want to be "it's hp so it's quality".

If the trend continues towards mobile devices, with people using tablets more, that's going to make it difficult for HP, which still depends a lot on printing for profits?

Printer use may decline if people just load PDFs on their mobile devices to view rather than print. They won't stop printing completely but enough to slow the growth. Or worse, it could be a situation like Kodak where photography moved to digital and the company couldn't transition.

PC business is a loss leader isn't it? The profits come from printers sold with those PCs and the consumables?

Anyways, Whitman didn't run a hardware business so how is she going to fix HP? She said recently that HP will eventually have to make its own phones. Too late for that and more than likely, HP is utterly dependent on what MS does.

I would have agreed with you before this summer. There are times when you absolutly have to print things. I was against even owning a printer untill I was applying for and got a job recently. My girlfriend purchasing a house has also required a lot of printing and scanning. I ended up buying funny enough an HP printer all-in-one that could also print from my phone or tablet. Honestly, I've only used that ability a couple times for coupons.

It sounds like she just got around to reading the last couple years of the forums here.

They changed the lifetime warranty on switches, why?

I have very little faith in Meg turning this around. Mostly because it's taken her a year to figure out what most everybody else has know for years. I mean she's talking about Multifunction printers and completely missing that HP's printer drivers have sucked for the last decade. Not to mention that they have too many models.

If she had a clue she would have realized that they sold a crapload of TouchPads and would have tried to ride that wave to something better.

I get a distinct "Jobian" feel from this. HP make way to many products, to the point where you don't know what to pick and what the real differences are. I would love to see her cut to the bone in that respect and get to a more Apple'ish yearly cadence of a a few well designed and supported products. Along with that I am hoping she will have the courage to double down on WebOS in a way that previous CEOs didn't. I am hoping that will position HP as the only company outside of Apple that offers a full easy to use set of hardware and software for everything you need.

Regardless I am happy to see Meg get all the bad news out of the way, we all knew it was horrible and rather than hide it all away it is now out there - ready to be attacked with real solutions.

Just remember HP you can recover and make great hardware with your own identity. Identity is important, you don't want to be an "it's almost like this but cheaper", you want to be "it's hp so it's quality".

Years ago, when most computers were still made here in the States, and were one of our largest exports, Hp's computers were considered to be the Rolls Royce of DOS and Windows machines. But once the market demanded cheap machines, and manufacturing moved out of the country, Hp's machines became no different from anyone else's. After they bought Compac, all their machines suffered, even though for a couple of years, the HP branded models were offered as the higher end series.

Once people opt for the lowest price possible, things become commoditized. Once that happens, it's a race to the bottom, and anyone who doesn't play that game is lost. Dell began it by selling machines at a loss, chasing marketshare in the attempt to become the worlds biggest PC manufacturer. We can blame Michael Dell for that. HP followed.

It's a shame, but I don't see a way out of it. IBM was right, even though they were laughed at at the time.

I buy servers. Not many — maybe a dozen a year. HP's offerings match their tier one status in support and capability, and I hope they continue making them. But it's painful painful painful trying to grope through the website find out what those offerings might be and how I might be allowed to configure them. And if I actually try to buy something, they're liable to direct me to some agent in the country next door. And nickel-and-dime me on virtual console access — to enable which I have to stumble my way through another site for licence keys. Could Do Better.

...surprised to find that we made over 2,000 types of laser printers." Whitman said that HP would reduce that number by 20 percent in the next year...

This is astonishing. And this isn't a product line where "it comes in 8 different colors" is inflating the count either. But 2,000 – 20% is still 1600. This is a bit like saying you're only going to jump off the 80th floor of the Empire State Building instead of the 100th, so everything will be OK.

So refreshing to actually hear honesty in the boardroom. Given the propensity for out-of-touch executives to run their companies into the ground, it's almost enough to make me think she might be able to pull it off.

I'm personally the owner of a Touchpad (running Android) and love it. All the Palm stuff was sleek and stylish and much-loved by people who used it. Here's hoping HP can actually turn things around and put out more products like that someday.

I am not sure why people think cleaning your dirty laundry in public is a good thing. The last time this happened was Elop with Nokia, and that almost certainly didn't help Nokia.

How do you think companies who were thinking of going with HP will respond to this? What are HP salespeople gonna tell their clients when their CEO herself is saying they havent done any innovating for more than half a decade, and that there is no coordination within the company?

This is nothing but an attempt for Whitman to buy 5 years as CEO, or at the very least, not be blamed if the transition does not succeed. It does not in any ways help HP (again, I am talking about making it public. Most CEOs know that there are problems with the company, but don't air that in public, except in massive generalities, or accompanied with a plan laying out the changes which will fix the issues aired. She did neither).

surprised to find that we made over 2,000 types of laser printers." Whitman said that HP would reduce that number by 20 percent in the next year

This is astonishing. And this isn't a product line where "it comes in 8 different colors" is inflating the count either. But 2,000 – 20% is still 1600. This is a bit like saying you're only going to jump off the 80th floor of the Empire State Building instead of the 100th, so everything will be OK.

It sounds like she just got around to reading the last couple years of the forums here.

They changed the lifetime warranty on switches, why?

I have very little faith in Meg turning this around. Mostly because it's taken her a year to figure out what most everybody else has know for years. I mean she's talking about Multifunction printers and completely missing that HP's printer drivers have sucked for the last decade. Not to mention that they have too many models.

If she had a clue she would have realized that they sold a crapload of TouchPads and would have tried to ride that wave to something better.

They sold 5% of their Touchpads at a profitable price. 5%! When they dropped the price to $99 they lost several hundred bucks per sale. That tell you something? I can't believe that some people still think that selling $500 machines for $99 is going help a company. What do you think that 10" device would have been like if it were actually been manufactured to sell at $99?

Printer use may decline if people just load PDFs on their mobile devices to view rather than print. They won't stop printing completely but enough to slow the growth. Or worse, it could be a situation like Kodak where photography moved to digital and the company couldn't transition.

Kodak knew the change was coming, but didn't want to cannibalize their core business. Kodak was a pioneer of digital photography, but they didn't act on what they had.

I can't believe some people here are naive enough to take a positive spin on this story. Meg Whitman is utterly, utterly incompetent. She knows nothing of the tech industry and has a track record of failure.

The really sad thing is that this is a pervasive problem throughout all facets of business and government. Managers like to blame workers for high costs and lack of innovation. But the reality is that the quality of management has sunk to an all time low. I am happy to see this from HP. Maybe it will trickle down to better products. I hope so. I really hope so.

I see a lot of posturing here. While I agree that previous CEO's made big mistakes, for her to blame the changes in CEO's as one of the big problems is a plea to be allowed to keep her job at least until 2016, the year she stated that Hp would be out of the mess, and the date her plans would come to fruition.

In actuality, the changes in CEO's were made because they had all done such a poor job. She actually praised two of them that have been acknowledged as having caused many of Hp's present problems. She praised Fiorina for making the purchase of Compac, something that was universally panned as beginning Hp's slide, and a reason for her firing. She praised Hurd for the purchase of EMC, even though that deal was criticized as being overpriced, and now, they had to do a write down of $8.6 billion, giving HP one of the largest losses in Us corporate history. Margins for EMC are stated by HP to continue falling. In addition, she complains that Hp's R&D is woefully inadequate—another doing of Hurd, as he was the one that slashed that area of the company while chasing short term profits.

As far as I'm concerned, her lack of understanding of those issues shows that she lacks the ability to lead this company. We should remember that her claim to fame was her running EBay. But she was responsible for the mistake of purchasing Skype, which did not work out, and led to a multibillion dollar loss for the company. She then fled the company as sales and profits faltered. She has no experience running any other real company, and was given the directors seat as a consolation prize when her bid for governor fell through (thank heavens!).

HP is more than 20 times the size of EBay when she left it, and is an enterprise focused company, whereas EBay is entirely a consumer focused company. She has no experience in what HP does. It's difficult to understand why she was picked, unless no other competent potential CEO was interested.

The irony of it all may be that Apothecker was correct. They may have to get rid of the PC division after all.

As someone who was recently considering HP for some major workstation purchases, I really hope they get with the program. Their offerings are pretty terrible right now

How so? It looked pretty good when Ars reviewed an HP and a Dell as possible Mac Pro replacements. And I regularly get the business desktops for my workplace. I'm not sure how they are terrible? I'm not a fanboy, certainly, but they seem like they have a decent set of products. We also use HP laser printers and are replacing our supermicros with HP servers.

I haven't been replacing any of them due to breakage and the specs seem decent enough. How are they terrible?

(BTW, at home I have all Dells so again, totally not a fanboy, I just don't see where you're coming to the terrible conclusion)

The reality is that HP was formed largely by buying businesses like Compaq and DEC that had already seen their better days. There is a reason that IBM discarded large parts of its hardware business. The PC client business is in decline. All of the computer business will increasingly get commoditized. Apple has the high priced spread locked up. Some company founders do play an exceptional role in building their companies. But more commonly good management performance is the result of managing a company that is performing well. It is always possible that Whitman could be the exception. But the odds are stacked against her.

For the record, HP existed for sixty years before buying businesses like Compaq and DEC. They did pretty well for themselves in that time. Unless, of course, you consider Agilent the true descendant of the original HP.

Sean Gallagher / Sean is Ars Technica's IT Editor. A former Navy officer, systems administrator, and network systems integrator with 20 years of IT journalism experience, he lives and works in Baltimore, Maryland.